Garage Suffers From High Expectations Study To Justify Downtown Facility Used Flawed Data To Project Strong Revenues

Copyright 2000, The Spokesman-Review

FIRST OF TWO PARTS

The problems with the River Park Square parking garage might be boiled down to a simple question: Would you pay $1.50 an hour to park in downtown Spokane?

Experts were so sure that a million people would say “yes” every year that developers of the renovated mall expanded a partially filled garage by nearly 75 percent. The city made a promise it thought it would never have to honor. Wall Street bet $31.4 million of other people’s money.

So far, too many drivers are saying “no.”

Instead of generating hundreds of thousands of dollars in income above what it needs to meet expenses, the garage is not attracting enough parkers to pay off bonds, make its rent and cover its operating costs.

Downtown businesses and a public agency are searching for ways to bring more cars into the garage, from better marketing to different rates. Right now, the garage doesn’t even draw enough parkers to pay its first expense - debt to investors who bought $31.4 million in parking garage bonds.

The city is being asked to keep its promise, after all, and tap into parking meter money to cover operating costs and rent.

Opponents of the garage, who argued three years ago that the city should not have risked its parking meter money, are alleging fraud and demanding investigations.

But supporters say the garage’s problems are temporary, and the meter money is a good investment for an estimated boost to the city of $4.2 million in taxes and fees from River Park Square this year.

The garage is a critical part of the mall’s redevelopment, they say, which in turn is the key to keeping a retail center downtown.

The garage was projected to generate $4.5 million in revenue this year. If its first five months of operation is averaged over this year, it will generate about a third of that, or $1.44 million.

That $4.5 million estimate came from a nationally recognized firm, Walker Parking Consulting/Engineers Inc., and was checked by two other nationally recognized firms, Coopers & Lybrand accountants and Standard and Poor’s financial advisers. The estimate was studied by local business leaders and trusted by the City Council.

Requests for comments about the report were referred to Mohammed Iqbal, general counsel for Walker, who said Friday he would not answer questions from any reporter about the study. “We firmly stand behind the report,” he said.

The garage’s first five months of operation suggest that Walker overestimated the number of parkers the facility would attract, the length of time they would stay and the price they would be willing to pay.

Which prompts another question: How could the estimates be so wrong?

There is more than one answer:

Walker’s engineers and parking specialists may not have adjusted their national formulas sufficiently to account for thrift-minded Spokane shoppers.

The estimates assumed that every car that parked in the garage would bring in $1.50 an hour, anytime Monday through Saturday, and $1 an hour on Sunday.

Some of the rates have changed. Cars generate only $2 in the evenings and on Sundays, no matter how long they stay. Parkers who arrive before 9 a.m. on weekdays pay only $4 for the entire day.

Walker assumed that daytime-parking customers would spend an average of three hours downtown before leaving the garage. Right now, with River Park Square only about 67 percent finished, the average stay is just over two hours.

The consulting firm assumed that theater patrons, the largest group of new customers for the expanded garage, would generate $3.75 per car. But the peak times for movie parkers are evenings and Sundays. They pay $1, and a validation program supplies another $1.

Movie patrons are using the new garage. But each of those cars puts the facility $1.75 behind Walker’s revenue projections.

Consultants also overestimated the average price Spokane drivers were paying for downtown parking when the study was conducted in 1996. They pegged it at $1.36 per hour. That estimate - which would be repeated in other studies of the garage’s finances - was fairly close to the $1.50 per hour consultants determined the garage could charge when it opened.

But it wasn’t the average cost of parking at an off-street space in the downtown core. A closer look at Walker’s own data shows that the average cost of an off-street parking space in the downtown shopping core was actually $1.08 per hour in 1996.

Walker’s consultants surveyed prices at seven downtown parking facilities, which had a total of 2,184 spaces and rates ranging from $1 to $2 an hour. They added the rates for the facilities and divided by seven, for an average of $1.36 on table C-1 of their report.

But that fails to account for the fact that most of the large lots charged $1 an hour, while the lots that charged $2 had only a few dozen spaces. When the total cost of all the spaces was totaled, and divided by the total number of spaces, the average is $1.08 per hour.

Iqbal, Walker’s general counsel in Elgin, Ill., said the report has been reviewed internally since news media questions arose.

“I asked other people (within the firm) to look at the report and see if they could find anything wrong and they said it was a fine report,” Iqbal said.

He said he has not been contacted about any possible legal action regarding the report, but has hired a local attorney because “we needed some local contact to know what was going on.”

Other appraisals and studies of the garage regarded some of Walker’s numbers as optimistic or aggressive, but repeated them in their own work.

`They were the experts’

Developers and managers of the garage defend the Walker report as professional and well-scrutinized.

“Nobody has a crystal ball, but the work that was done was done on a professional level,” said Betsy Cowles, president of River Park Square LLC. “I don’t have any reason to think the study wasn’t professionally done. Some of their assumptions were obviously incorrect, but how could they have foreseen the problems?”

All the assumptions for the number of parkers were reviewed, said Bob Robideaux of R.W. Robideaux and Co., which had operated the River Park Square garage since 1987. The $1.50 per hour rate was tested through surveys of customers, and reviewed by consultants and appraisers, he said.

“The majority of expert opinion was, a dollar and a half was reasonable,” Robideaux said.

Roy Koegen, bond attorney for the city and counsel for the Spokane Parking Public Development Authority, said he and then-deputy City Manager Pete Fortin raised questions about Walker’s estimates in 1996, including the average cost of downtown parking at the time and the price the garage was planning to charge.

“We asked those questions and we were told we were wrong, that they were the experts,” Koegen said.

A limited survey of cities across the country that have built and operated public parking garages suggests $1.50 may be too much.

Portland charges 95 cents an hour in its seven public garages. Boise and Madison, Wis., charge 75 cents.

Warning flags out

The Walker report was one of several reports in 1996 that considered some aspect of the parking garage.

The $4.5 million it estimated the garage would collect in the first year of operation was more than enough to cover estimated payments on bonds, operations and maintenance costs, and ground rent to the developers of the mall, River Park Square LLC.

That company is an affiliate of Cowles Publishing Co., which owns The Spokesman-Review.

Two separate appraisals of the garage’s value used estimates in the Walker report in trying to assign a sale price to the garage.

Before pledging the city’s parking meter money to cover any deficit for operations costs or ground rent, the City Council ordered a fourth study in late 1996. It hired accountants at Coopers & Lybrand to check Walker’s estimates.

That study was delivered to City Council members just hours before their vote on the parking meter pledge, and contained some significant warnings.

Walker used a standard formula for projecting how much money the garage would generate, Coopers & Lybrand said, but it was difficult to predict the number of customers the new mall would generate for the garage.

The accountants were concerned about the $1.50-per-hour fee, and the likelihood that shoppers would stay an average of three hours. Assuming that movie patrons - who could park free at most other theaters in Spokane - would pay $3.75 “may be aggressive,” the report concluded.

Any discount program that resulted in the garage getting less than the rates Walker projected could create “a significant hole” in the facility’s finances, said Mike Wenzell, a director of the accounting firm.

Despite those warnings, the city agreed to tap into parking meter funds if the garage revenues ever fell below the facility’s “fixed costs.”

Supporters of the development continue to argue that the parking meter money is a logical source of backup funding for the garage because it is money generated downtown, the area the mall project was designed to rescue.

In the early 1990s, the city even removed meters from the downtown core in an effort to attract shoppers to the dwindling retail center.

“The concept of parking meters as some kind of Holy Grail has come out of left field,” said Duane Swinton, attorney for River Park Square LLC.

But opponents of the garage deal point out that, as part of the city’s transportation fund, meter money helps fix Spokane’s cratered roadways. Any payment to the garage represents potholes unfilled. Last year the meters collected $1.9 million.

After the council approved the parking meter ordinance, the city secured a federal guarantee for a $22.65million loan for the project. The developer continued to negotiate with stores to sign leases in the mall and set up a new nonprofit group, the Spokane Downtown Foundation, that would sell $31.4 million in tax-free bonds to buy the garage.

Using appraisals of the garage conducted for the city, the foundation agreed to buy the facility for a negotiated price of $26 million - the cost of the expansion was estimated at $20.7 million and the extra $5.3 million represented the value of the existing structure and business, Swinton said. The remainder of the $31.4 million covers the costs of issuing and securing the bonds.

A wrecking ball began pounding down the old River Park Square in October 1997, and the bonds were sold in September 1998.

Read before buying

Before the bonds sale, another review of the garage gave potential investors an indication of the project’s risks.

The official bond statement lists Walker as the project’s parking consultant, and includes the consultants’ full report as an appendix. Investors were urged to read the report before buying, and warned the actual results of the garage could be different.

The bond statement also has a paragraph that repeats some of the warnings from Coopers & Lybrand. But, the same paragraph said, Walker was a “recognized expert” on parking garages, and its estimates were based on national models.

In its credit report on the garage, Standard and Poor’s warned that Walker’s estimates of a million customers per year in the garage were a “very optimistic” increase over the garage’s past usage. But parking fees must be used to pay the bond first, the rating agency noted. Even if the garage operated only at its historic levels, there would be enough money for bond payments - if it charged $1.50 an hour Monday through Saturday and $1 per hour on Sunday, as the Walker report projected.

“This rate compares favorably to a current average of $1.36 at downtown parking facilities,” the rating agency said, referring back to the Walker report’s inaccurate average.

Kurt Forsgren, a senior analyst for Standard and Poor’s and a co-author of the 1998 credit study, said the agency used the Walker report for “baseline data.” It analyzed some of the assumptions and talked with Walker consultants, but it didn’t recheck figures as basic as the average parking rate.

The agency does not feel it was misled by the Walker report numbers, Forsgren said.

“They obviously make mistakes, as many consultants do,” he said. “The reality shows there are a confluence of events (currently) that magnify whatever mistakes were made.”

The new rates were a shock to some Spokane drivers, who had grown accustomed to a validation system that offered them two hours of free parking in exchange for a purchase, and free parking evenings and Sundays.

The Parking Development Authority lowered the cost for evening and Sunday parking and offered “early bird” parkers a discount that was first $5 a day, and now $4 a day.

It also capped the daily maximum a parker would pay at $8. Overcoming the early perception that a parker could pay $18 - the hourly rate of $1.50 multiplied by the 12 hours the garage was open - remains a public relations problem, said Robideaux, the operator.

If it can get an agreement with River Park Square LLC and Nordstrom, the parking authority plans to allow as many as 130 customers to park for most of the year at $90 to $100 a month.

That would create a steady stream of about $120,000 per year. But each of those spaces would generate about $200 less per month than Walker projected the average space would bring in.

Determining the rates that will get the most money from the most customers is difficult, Forsgren said. Any discount affects the revenue that Walker projected, the city relied on, and that the budgets are based on.

“The assumption of a nondiscounted (parking fee) system was key to our analysis,” he said.

A bumpy start

The garage had problems other than the price of parking when it opened, the Parking Authority and its operators said.

Some customers were confused by the signs, others didn’t like the system that encourages them to pay for parking before leaving the mall. Others balked at the new validation program, which was less than the old rebate program. Some of the mall’s tenants offered validation and others didn’t.

Ticket-reading machines broke down on the mall’s opening day and developers eventually decided to make parking free for the first weekend.

Although the retail portion of the mall opened to strong praise, parking was criticized as too expensive.

Along with adjusting rates, operators of the garage have improved the signs, are continuing to upgrade the ticket validation process, and are installing a fourth elevator ahead of schedule.

The garage became an issue in a contentious City Council election last fall. For months it has been a regular topic of criticism at council meetings.

In an effort to overcome some of those bad first impressions and what Robideaux calls negative press, River Park Square LLC plans to spend up to $100,000 to market the garage. That program will be combined with other downtown business owners’ campaign to bring more customers to the city’s core.

“The one thing that is still lacking is getting the message out,” Robideaux said.

Revenues also will increase as more shops open in the mall and garage customers stay longer, he believes. Evening customers will increase as they realize they can park for $1 if they get validation at theaters and restaurants.

But critics say the agreements that cover the garage need to be restructured to lower such costs as the ground rent paid to River Park Square LLC, which still owns the land on which the garage is built.

The city has agreed to pay for yet another study, by Keyser Marston Associates Inc., another nationally recognized parking consultant, to come up with options that might range from better marketing to refinancing the $31.4 million in bonds.

But acting on any suggestions in that study will require agreements among the developers who are currently not being paid their rent and are not being reimbursed for operating the garage, retail tenants who are leery of giving up parking spaces for potential customers and a new City Council that believes its predecessors were pushed too quickly into decisions in 1997.

This sidebar appeared with the story:

Key players in garage decision

Here are some of the key players in the River Park Square parking garage saga:

City Council members

The City Council in January 1997 was made up of six members: Orville Barnes, Jeff Colliton, Mike Brewer, Roberta Greene, Phyllis Holmes and Mayor Jack Geraghty. All voted to pledge parking meter money to cover any shortfall in parking garage operations.

The seventh member, Cherie Rodgers, had been appointed to the council to fill the remainder of retired Chris Anderson’s term, but had not been sworn in. On the night of Jan. 27, Rodgers was sitting with the audience in the council chambers.

Only Greene, Holmes and Rodgers are still on today’s council. In fall 1997, Geraghty lost an election to John Talbott, who ran largely on his record of opposing the city’s participation in River Park Square.

Barnes left the council because of term limits and his seat was won last fall by Steve Corker, while Colliton was defeated by Steve Eugster.

City staff members

The agreements involving the River Park Square mall and garage required the work of senior city staff members. Pete Fortin, who was at various times an assistant city manager, deputy city manager and finally acting city manager, was involved in reviewing projections by parking consultants.

Mike Adolfae, director of community development, was among city staff who worked with accountants from Coopers & Lybrand in their review of the finances of the garage and the mall.

City attorney James Sloane headed the city legal staff that reviewed all contracts and covenants involving the city.

Roy Koegen, attorney for Perkins Coie, serves as the city’s bond counsel, and is also the legal adviser to the Spokane Parking Public Development Authority, the public agency set up by the city to manage the garage.

The Spokane Downtown Foundation is a nonprofit corporation that sold bonds that must be paid off with revenue from the garage. Its board consists of president Thomas White, vice president Christine Schnug, and secretary-treasurer David Broom.

Developers

The mall is being developed by River Park Square LLC, an affiliate of Cowles Publishing Co. Cowles Publishing also owns The Spokesman Review, KHQTV and New Media Ventures, as well as numerous downtown properties. Betsy Cowles is president of River Park Square LLC, and vice president of Cowles Publishing.

The mall is operated by R.W. Robideaux and Co., a real estate management company run by Spokane native Bob Robideaux.

River Park Square has been developed with the help of numerous consultants. One of the most prominent is Bob Ferguson, an Ohio-based mall expert who used to head the development department for the Simon Debartolo Co., one of the nation’s largest mall builders.

Helping lease the mall is Terranomics, a San Francisco-based commercial real estate agency.

River Park Square LLC is represented legally by Duane Swinton of Witherspoon Kelley.

Opponents

Some of the opponents of the city’s involvement in the parking garage in 1996 and 1997 are now some of the people involved in solving its problems.

As a citizen activist, John Talbott questioned the garage’s viability in 1997 when the City Council pledged parking meter revenues to cover some expenses; he was elected mayor later that year.

Attorney Steve Eugster also opposed that decision; he was elected to the council last year.

Other opponents included longtime council watchers Dick Adams, who questioned the number of cars that consultants projected would park in the garage, and Ron McArthur, who urged the council to take more time to study questions raised by accountants from Coopers & Lybrand.

Representatives of the Sabey Corp., which in 1997 owned NorthTown Mall, also opposed pledging parking meter funds to shore up garage expenses.